Non Corp Holdings Corp. v. Canada (Attorney General), 2016 ONSC 2737

The corporate applicant intended to distribute the applicable portion of a “capital gain” (likely, goodwill proceeds) from a business sale as a capital dividend. While the dividend was, in fact, paid on November 1, 2012 (one day after the taxation year end), the directors’ resolution and CRA election form were both dated October 31, 2012, thereby resulting in the imposition of Part III tax on the dividend. CRA considered that a court order was required to rectify the dating of the directors’ resolution, but did not oppose this application.

Before amending the directors’ resolution nunc pro tunc to change its date to November 1, 2012, Dunphy J stated (at paras. 7, 9):

This case is quite unlike…Birch Hill…decided by me…[where] [t]he rectification sought would have materially re-ordered the transaction in ways that nobody had considered at the relevant time.

There was a specific intention to allocate specific proceeds of a specific transaction to a specific tax account – the capital dividend account – to achieve a specific tax goal. A very minor mistake, in human terms at least, was made.

Following the sale of a business giving rise to a “capital gain” (likely, goodwill proceeds), the dividend of the targeted capital dividend amount was paid on the first day of the following year, but the resolution declaring the dividend was dated the last day of the current year. Dunphy J granted a rectrification order to change the dividend declaration date to the following payment date (as required by CRA in order to reverse the Part III tax).